US Producer Inflation Highest In 3 Years in July

US producer price inflation bounced in July to its highest reading since 2022, data showed Thursday, with underlying signs that businesses are facing pressures from President Donald Trump's tariffs.

The rise in services costs exceeded that in goods, contributing to a markedly larger advance than analysts expected.

But economists noted that the headline increase might be overstated -- boosted by a range of volatile factors -- even as there are also price gains in goods exposed to tariffs.

The producer price index (PPI) rose 0.9 per cent on a month-on-month basis after a flat reading in June, said the Department of Labour.

A Briefing.com analyst consensus forecast expected a much smaller jump of 0.2 per cent.

The PPI measures changes in prices that producers pay, and the report is seen by some as a bellwether for what consumers could face in the months ahead if firms choose to pass on more costs.

Businesses have been grappling with Trump's sweeping tariffs after he targeted most trading partners with a 10 per cent levy this year, alongside steeper levels on sectors like steel and aluminium.

The latest numbers took the overall PPI figure to 3.3 per cent, said the Bureau of Labour Statistics.

The cost uptick in goods was 0.7 per cent while that of services was 1.1 per cent -- marking the biggest such jump since March 2022 as well.

While the advance was "broad-based" in July, more than three-quarters can be traced to services, the Labour Department said. 

Much of this was due to trade services, relating to changes in margins for wholesalers and retailers. Economists noted this was a sign that trade disruptions are hitting supply chains, though trade services are also a volatile component.

Prices for final demand goods made a big advance too, with 40 per cent of the July increase traced to foods.

- Fed dilemma -

All of this complicates the Federal Reserve's job as it seeks to balance inflation risks with the health of the labour market in mulling the right time for the next interest rate cut.

Fed policymakers have been monitoring the impact of tariffs on consumer inflation, with some officials arguing the hit will be one-off and others cautious about more persistent effects.

"Input costs for producers jumped in July as price pressures for businesses build from compounding tariff impacts," said Nationwide senior economist Ben Ayers in a note.

"While businesses have assumed the majority of tariff cost increases so far, margins are being increasingly squeezed by higher costs for imported goods," he added.

He said that tariff price hikes were most obvious within metal and food categories, with readings for steel and aluminium -- both targeted with 50-per cent levies -- jumping in recent months and adding to cost concerns for manufacturers.

Ayers expects more of the tariff burden borne by companies so far to pass through to consumer prices in the coming months.

"Tariff-exposed goods are rising at a rapid clip, indicating that the willingness and ability of businesses to absorb tariff costs may be beginning to wane," added Matthew Martin, senior US economist at Oxford Economics.

The effects of Trump's tariffs on consumer inflation have been limited for now, with a key gauge -- the consumer price index -- steady at 2.7 per cent in July.

This, combined with government employment data showing that recent hiring numbers were significantly weaker than estimated, has raised the odds of a September rate cut by the central bank.

Martin said the PPI data "provides a counter-balance to these reports" and highlights the Fed's dilemma.

"The big picture remains that inflation is further away from the Fed's target than the unemployment rate and is likely to climb further over the coming months," he said.

"The path forward will have to traverse a tight rope between the next employment and price reports," Martin added.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)